Trade to win

[trader_dante]

I have decided to stay out of the market until a better opportunity presents itself.

 

[trader_dante]

So, a good week could turn bad after all.

I was filled in a short position this morning on NZD/USD. I have been bearish on this pair ever since reading a post over at FF, which warned that the current rise was unsustainable , completely unreflected in the fundamentals and then proceeded to emphasise how sudden and sharp the coming fall could be.

Yesterday there was a decent fall and looking at the chart last night I saw a DBHLC(1 pip out) and decided to put a short order on the break below.

This was triggered just before I left for work but the price has rebounded and although I cannot currently see my account, I know I am significantly down and I feel disappointed.

The reason I feel like this is not because I am losing. It's because, to be honest, I have been completely taken in by someone else and I have no one but myself to blame for this.

I didn't blindy follow - I read the post and I waited to see a technical confirmation but regardless, the risk if I was to get stopped on this is too much. To jump aboard something after spending the last three weeks being patient is extremely frustrating. To possibly lose such a large percentage of my account is devastating.

At any rate, I will update this later when I can get home and see a chart of the session.

 

[trader_dante]

NZD/USD

I have just closed this position.

Loss - 50 points

My stop wasn't hit but I decided to exit none the less.

On the whole, I think my TA was valid. There is overhead resistance on the charts and the DBHLC was a good setup but the risk if this goes against me is simply too high.

The doji that has formed today had left me somewhat indecisive as to the future course of the NZD but I do know that preservation of capital is of the utmost importance right now.

It is hard not to feel disappointed. My account was up over 75% on the week and yet still, the return I am left with is very good.

End of week summary:

+5 points
+26.7%

 

[trader_dante]

So many setups...so little margin.

There are some decent pb's in my watch list this evening.

A PB on GBP/USD hints at a reversal for this pair whilst the pb's on key US indexes (Nasdaq 100, Russ 2K and the S&P 500) suggest a possible resumption of the longer term trend upwards.

A PB on Sugar (London, No 5) has also attracted my attention.

Other setups include some I4B's on some of the Australian Dollar crosses which look good to play on a break either long or short...

At any rate, the trouble with all these setups is deciding which of them to take.

It's probably sensible to take the smallest risk in number of ticks (since my size per tick is currently consistent) but I am attracted to the pound becase I feel that it is due a correction, I know other traders who are looking to short it at similar levels and I am also aware that it has the potential to return a large number of pips.

Of course none of these reasons are in and of themselves sufficient to risk such a large percentage of my equity but for better or worse, I have decided to go short on GBP/USD since it has just broken down through the low of the pb.

 

[trader_dante]

It looks like the Russ 2K was the star of the show today and I'm left feeling sorry that my margin didn't extend far enough to take all the setups I posted last night, since each one of them went the way I predicted.

Still, my confidence is building. As is my account.

I just closed my GBP/USD short for a profit of 70 points.

Before I left for work this morning I placed a stop just the right side of breakeven after I saw the bearish engulfing candle developing on the hourly. I reasoned that as a result of this price action, the price should move lower and if it failed too, I no longer wanted to be in it.

I had a good idea it was going to bounce around the s/r pivot (see line on the daily chart) and I was aware that whilst I was at work I would be able to do nothing about it but I didn't want to place a limit order because there is always a possibility it could have traded right through it.

As it happens, the bounce which came was short lived and it's now near the lows of the day so I took the opportunity to close.

Which brings me to my final point. For some reason I have an intense aversion to rolling trades. I think there is a possibility this move could continue down tomorrow but the fact remains that I didn't want to roll.

And I think the reason is due to the psychology of desiring a "clean" account. The way I understand it, if my position rolls at the current price, I am marked to market and my account is credited with 70 points. Then I am re-entered immediately at a variation (I am vague on this part) of the current price (the reason for this is to calculate theoretical interest payments in holding the pair). So, if tomorrow the pair was to rise and I was to stop out at a loss of, say, minus twenty points - the account would post a loss.

So, same result as if I had just trailed a stop twenty points behind. Overall equity would show a fifty point increase in my example. And yet still, this breaks down to one losing and one winning trade.

Actually, I am glad I took the time to write this out. Because honestly, this desire not to litter my account with losses despite overall account equity being positive and rising, is completely irrational.

 

[trader_dante]

I would like to comment on becoming a winning trader by cutting losses and letting profits ride because I strongly believe that it is one of the hardest things for a trader to actually do but one of the most vital in becoming successful.

I originally wrote this in response to a post on FF in which a trader, who wanted to make a living off of just daily bars, said that he had had approximately thirty wins and only ten losses but had wiped out his whole account. It turns out that just three of these trades swallowed all his money because he kept thinking they would turn around.

This trader went on to say that when he had had winners, his reaction was always the same - he would see his position positive and immediately close and take the profit – only to usually end up seeing the market continue in the way he had originally thought it would.

My answer to the trader is as follows:

If you are in a situation where the position you have taken is significantly in profit, take a minute to sit quietly and think rationally. You need to focus on the fundamental thing that your position is now telling you.

You have called the market and you are RIGHT.

We know by its very nature that the market goes up and down so when we are losing we hope at some point it will come back and if we are winning we worry that it may turn and that we may give some, or worse, ALL of our profits back.

I quote from memory of another’s work (I forget the source) when I say that we are "taught" from an early age that:

a) If we lose something it will eventually come back (e.g. If you lose your car keys, not to worry, they WILL eventually turn up)

b) If you see something, take it or you might lose the chance (e.g. If you see money lying in the street, pick it up quickly because it may not be there for long)

This translates into our trading. If our position goes against us, we tell ourselves not to worry because nothing goes one way for ever and it must surely come back. If we are winning, we want to get out quickly because if we come back later, all our profit may all be gone.

The reason it is so hard to overcome this is because it has been "programmed" into us. To be a good trader, requires going against what we have had ingrained from an early age. To put it simply, it requires going against human nature - what our heads and our hearts tell us.

It's been repeated so often it’s boring. And yet all traders that don't make it into the elite 5% suffer a manifestation of the same problem. They are either not cutting losses early or not letting their profits run.

Have you ever wondered why the market always reverses after you get out? Late last year I went long the GBP at around 1.90 targeting a move to $2.

At the time the pound had made an attempt on 1.91 several times and then come off - it was like a barrier and I felt certain that once it was broken it would go straight up to $2. This time I was convinced it would give way under the pressure of constant testing.

However, once I was long, the market began to fall. And I held and I held. Every day that it fell, I moved my stop further back, convinced that it would soon turn.

When it got down to around 1.85, I closed out. Not because I thought it would go any lower but simply because I could no longer take the pain of losing. And what happened? The market turned at almost exactly that point and only a few weeks later it was trading at 1.98 - a full 800 pips up on my original entry.

Now whether I am right or wrong I will tell you how I see this in my head. I see it as the market having to turn because all the amateurs like me have held their position for so long, past so many logical places to get out that finally the pain is FORCING them to bail out. And once the weak having been shaken from the tree, the market is ready to move up again. As I said, this may be wrong, but this is how I like to view it.

So how do you overcome this?

Pick a point before you place a trade that, if the market hits, proves you are WRONG in your analysis. If you see, for example, a double top, and want to go short, place your stop a little way above the double top.

I have done this before, shorted at what I consider a top, only to see the market move up through it. Rather than close, I would then move my stop further and further away with the reasoning, this climb cannot go on, its got to fall...it's just a market fake out...it will come down.

But here is the point: Who cares if it comes down an hour later? Or the next day? Your reasoning is that the double top is the turning point. If the market trades through it, you are WRONG. This is NOT the top.

What if it was only a fake out and the market then plummets? You likely end up frustrated. What if it wasn't and you keep moving your stop back? Well that's a quick way to the poorhouse. And I know which of these outcomes I think is worse.

Remember, the market has a way of frustrating every trader but the greatest traders are flexible. If you are wrong in the short term, close your position and wait on the sidelines where you can see clearly and wait for the market to move in the direction you thought it would.

Timing is everything when you are trying to make a living do this. If your timing is wrong, then get out. Sometimes the market may give you another chance but you can bet the time you need it to most, is the time you will get dragged out.

This may make you laugh but it took me, personally, just over two years to realise this simple truth: You have no control over the market. You cannot influence where it goes. The market doesn't know who you are; it doesn't care who you are, what you have or what you could lose. It goes where it goes and you either ride it or you get carried out.

So, that's how you should cut losses. How about letting profits run?

For me, a key thing to remember is NOT to look for reasons to exit a trade once it is going well.

I did this a few months back with the GBP/JPY. The trend overall was firmly up but it had suffered a rather sharp pullback over a few days. Then it had bounced at an EMA that I use and began making its way back up. So I got in based on this DAILY bar and near the end of the day it was up just over 100 points. Now I became enamoured with this 100 point gain. I had a considerable amount of money on the table and as such I started seeing reasons to exit.

Suffice to say, I found what I thought was a good one - the stochastic was overbought on the HOURLY - it was running along steadily just above the overbought line. So, out I came. Then, in the Asian session, the price steadied and while it did this the stochastic came slowly down to oversold and then began to turn up, even though the price has suffered almost no pull back.

The next morning the market was up strong again and just a few days later it was up 1,000 ticks on my original entry.

For me, the emotional pain I felt at being in it, then exiting and missing the massive move, was the same as, if not worse to just having LOST in the first place.

I spent five months trading from home and gradually lost all my money. Looking back, that one trade could have been the difference between me being still at home trading for a living and where I am now - which is back in the daily 9-5 in an office doing a job I hate.

So, of utmost importance - remember why you entered the trade in the first place. With price action you can do this by STICKING TO YOUR TIMEFRAME. If you took a pin on the daily, do not get shaken out by a pin in the opposite direction on the hourly.

Sometimes you learn something when you least expect it. I actually had an epiphany of sorts when my girlfriend who knows absolutely nothing about the markets at all said to me: "Everyone has different reasons for doing things - they all play the game a different way."

This is the reason why the market goes up and down. Everyone is buying and selling based on different thought processes. Different strategies. Different methodologies.

But your reason is based on YOUR methodology so forget the other players. Let the market guide you.

In my opinion, a 20 tick pullback in a 100 tick move up is not a sign that the move is reversing. It is natural and it is inevitable. Consider the other market participants. In the short term they may want to scalp a small move or they may be hedging and therefore taking a position for another reason UNRELATED to profiting. These buyers and sellers will cause temporary fluctuations in price but actually exiting a good trade should be done when YOUR reason for entering is WRONG not just because it is suffering a temporary setback.

Let's look at price action:

If I enter on the break of a daily pin bar, (with a stop loss of say 100) I EXIT either when:

a) The daily bar gives me a sign the move is over and that signal is then CONFIRMED e.g. Signal may be another pin that appears, confirmation would be the break of it

b) My original stop is hit.

If I get in a trade and the market is up 300 ticks on the first day, I still have my stop loss where I could lose 100 if I get hit when the new session starts.

Each day I will trail my stop depending on the price action of the previous session. If you are long and in profit and then a bullish outside bar develops, then place your stop just underneath that bar because a reversal back underneath it means the trend is not as strong at the moment as you had thought.

But always try and remember – simply being UP is not a consideration for getting OUT.

Some people take these signals and close on the FIRST DAY because they have made a killing. Just think for a second - You are trading off a daily bar. You've had just ONE go in your favour. Try this. Look at a massive trend that you would like to have caught. Look at a possible entry such as the double bottom, or any of the many swing highs/lows. Then count how many daily bars made up the rest of the move, from bottom to top. Now consider exiting on the first one that shows a profit.

Of course some people don't like to play this way. They like to take profits or they like to scale out as it moves their way. This is all well and good if there is a valid reason other than "this has gone really far." If you trade with the trend you can capture a very large move simply by not being so quick to exit.

I would add finally, that it is always an eye opener when you read about how other traders have managed positions. If you research some of the best and highest earning traders in the world and follow what they did on the charts you will find as I did that if you took the same position, the moment you would look to exit is usually the moment that they are looking to ADD to their position.

Look at the traders that made a killing in the incredible fall that happened in Natural Gas futures. Go and look at a chart of that market. On a daily you wonder how anyone that saw it didn't get rich. It's straight down. But then imagine being actually in it and seeing a sharp two day spike up from all the bargain hunters. Most, if not all of the people reading this, would, if honest with themselves, be long gone, patting themselves on the back for their profit even as the market turns and falls through the floor.

So to sum up: Have the strength of your convictions.

There are some traders that aim to take 10 pips a day and that is fine. If that is your style and you are consistently profitable then by all means do that. But if you want to trade off daily charts and make a living and if you consider that a stop on a daily chart may be 100 ticks or more, don't be rushing for the exit when you make 50.

This is not to say that any trader should hold blindly. But try and be logical. Look at price action and let it tell you where the market is going over the time frame. And remember the other participants in the market.

There is always a tug of war in the market but someone is going to win...and if you are patient, that someone may be you.

 

[trader_dante]

End of week summary:

+70 points
+54.6%


End of month summary:

+92 points
+135.7%

 

[trader_dante]

Early on in the evening I decided that I was going to be watching some of the Australian Dollar and Japanese Yen pairs after they formed PB's.

Talking on Skype this evening with a fellow trader and watching the Australian Dollar crosses weaken significantly whilst the Japanese Yen strengthened, I noted how the setups changed from PB's to BEOB's causing potentially larger stops in the event of taking positions.

As it happened, the trader I was speaking with was just entering AUD/JPY short, quoting the price as trading below 99.00. Looking at my chart, I realised it had stopped updating around thirty minutes previously. I then found that the quote was static at 99.11.

I realised I had a potentially profitable opportunity although it occured to me that if I was to go short, there was a possibility that the real price could reverse and my broker could then cease to "fix" the lagging price until it was even or below the current - causing me to pull in my short at a loss.

At any rate, I logged into another account to see what was happening for myself and as I saw the live price falling still further and touching 98.90, I immediately sold it short at 99.11.

I sat there for a few moments and was considering selling some more when the price suddenly corrected (causing the gap in the chart) and I closed out.

As a result of the change in setups already mentioned, I decided to abstain from placing any orders for the next session.

Profit - 15 points

 

[trader_dante]

Unless I see either any latency scalping or misquote opportunities tonight, my weekly result is just over 15%.

For the benefit of those who are reading this, the large percentage increase compared to the relatively small number of points gained, is a result of leverage.

On the whole my position sizing is consistent but when I find these almost near zero risk opportunities, I take a much larger size.

End of week summary:

+15 points
+15.1%

 

[trader_dante]

So, eventually, I did it. After five weeks of profitable trading, I made a serious and costly mistake.

I thought long and hard whether to take a setup in Crude Oil yesterday and I came to the conclusion that it was simply too much risk.

But last night, what looked like an even better opportunity presented itself in Oil: a short setup this time.

I had a whole list of potential setups last night but the problem was being at work and unable to monitor the respective markets. I was aware that if the commodity markets I wanted to play, gapped through my order price when they opened, I would end up taking on much larger risk than I had intended. Yet I was unable to avoid this because my broker doesn't allow me to place limit entry orders.

The only way to play these in my opinion is place the order according to where they are trading after they have opened. Since I couldn't do this, I ruled them out.

However, Crude which opened before I left for work, was trading above my potential entry point and because of that I focused on the risk as being manageable rather than unacceptable which is what I should have realised.

The number of points at risk was 99 which translates to over 40% of my account - far higher than the amount I had decided not to risk the day before.

So the decision was illogical and yet I placed the order.

I realised via Bloomberg that I had been filled early on in the session and it was through Bloomberg that I realised I must have been stopped out in the late afternoon.

I feel terrible. It's not the loss that upset me - it's the fact that I have traded cautiously for five weeks and for five weeks I have won consistently. Now I have done what feels like irreparable damage.

Of course it is not irreparable. In terms of goals, I am still ahead of where I should be but none the less, it has set me back significantly.

Loss - 99 points

 

[trader_dante]

Losses are fine - if you can evaluate the losing trade and learn something from it.

I have experienced the danger of revenge trading before and yet after the destabilising loss I suffered yesterday, I got home, determined to make the money back.

This in itself is not a bad attitude, if you can stalk your trade, like a wronged Sicilian, hell-bent on revenge.

If instead, you want to make your money back and you want to make it back today then the chances are you are in a whole world of trouble.

As it happened, I saw what looked like a PB forming on the DJIA and decided before the market even closed that I had a definite bearish bias and wanted to be short.

For some reason, however, I wanted to be short in the DAX. This is not neccessarily a problem since the two markets move with a deal of correlation from what I have noticed.

So, watching the two markets side by side, I tried desperately to look for a reason to get short. Although I wanted to be short badly, some logical side of me still wanted to see some confirming PA - on any timeframe.

I soon saw a decent support level in the market and as the price headed for that in the last quarter of an hour of the open, I decided that I was going to get short on a break.

However, as I went to pull up a price, fate intervened and my internet connection went down. We've had problems with our phone lines in the last few days, after vandals managed to take out 300 lines in the immediate area.

As a result, I didn't manage to get in before the market closed for the evening. This was fortunate because when I had a look this morning at the open before I left for work, I saw that the price had dipped through the support level but had quickly come back up before the close and was trading well above it.

The DAX was marginally higher on the open but was forming an hourly PB. So, as the hour closed and the next began, I entered short on a break below that PB and then left for work.

And now, once again, I am watching a losing trade.

The mistake was obvious: I went short on a minor fall, right above solid support. So whether I win or lose, I am disappointed with myself.

After all, experience is only beneficial, if you can learn from it.

 

[trader_dante]

To be honest when price came within 3 points of my stop, hit the descending hourly trend line and then came off sharply, making a BEOB, I thought this trade was going to work.

But I underestimated the strength of the support in this market, of which there is several levels to get through.

It made it through the first level in the late afternoon session, bringing me almost back to breakeven but it didn't get as far as a proper test of the second before once again moving higher.

 

[trader_dante]

I was stopped out this morning.

Loss - 65 points

 

[trader_dante]

This has been a disasterous week for me with a loss so far of over 70% of my account. I know there will be people reading this that will be imagining how I could allow just two trades to do that much damage but it should be noted that this is a very small account and I am trading at the minimum size that the account allows.

These two factors combined means that almost any win or loss is going to have a large effect on the overall account until the capital base becomes more significant.

It should give the reader an indication of how hard it is to build an account when you realise that trading off of a daily time frame and frequently of of PB setups requires very large stops. And when I started, just 1 point at minimum size was worth 1.1% of my total equity. Just covering the 3 point spread trading the GBP/USD, at 3.5%, is taking more risk than a trader is widely recommended to accept in a single trade.

The first loss on Oil made me feel frustrated and I leapt back into the market to try and make back my loss. This second one has left me with a feeling of humility. But not self-doubt.

I have no doubt that I am on the verge of developing a profitable edge but I am also aware how easy it is to succumb to complacency and taking average setups because I am prone to forget that this is not a race, it's a marathon.

After the weeks losses, I am at the stage where a negative outcome on the next trade I make will result in blowing the account, so I am going to be very careful and wait for an optimal setup or the chance to profit from my broker's "mistakes" once again.

 

[trader_dante]

End of week summary:

-164 points
-71.9%


So, more points lost this week than I have made in five weeks. It's frustrating and it's disheartening.

As I see it, the amount I have left in my account will cover one final trade at minimum stake so it's going to have to have a very high probability of success for me to take it.

 

[trader_dante]

Well, it's been a long time and I have to confess, this account has long been wiped out.

I suppose it was inevitable really - starting with such a small amount of money meant the chances of sustained success were incredibly slim. I like to think of it as an experiment and I think that by analysing my trades in this way, I learnt a lot of valuable things about myself and the way I trade.

I am a little vague on what happened after my last post. I seem to remember being patient and then taking a position in the Dow. Closing the position in the cash market for a small win and then taking the same position in the futures market which ended up turning into a loss.

Finally left with almost no money, I took a short position in Wheat (which was the only product I had the margin to trade) which gapped up sharply on the next session open. To tell the truth, that trade actually ended up running this account into a small debit. Still, that is paid and I am now back learning and actively trading.

Apart from the odd exception I don't think there were any contributors to my thread and yet tonight I discovered the "Reputation" section of this website and I wanted to say a big thank you to laptop1 and bizmanny for the encouragement.

I may surface with a journal again sometime soon. In the meantime, thank you for reading.

 

[StupendousTrader]

It's not the amount of fund but DISCIPLINE

Hello Trader_Dante:

I see three major faults in your trading, per your journal.

1. Lack of discipline.

2. No specialization.

3. No efficient money management system.

First, it appears you have no specific rules to enter and exit with precision. You do not have to trade when there are no great trades. Go for only high probability trades. Hence, discipline yourself to sit tight until the market comes to you. Do not pursue the market. You must discipline yourself in all aspects of trading -- from following your rules to money management.

Second, it looks like you are jumping from one trade to the other. You must specialize and study the particular market that interests you. Don't just go from Forex to Wheat to Oil and Gas. Even in Forex, specialize in particular currency pairs, no more than 6 pairs.

Third, I do not know your starting capital but let's assume it is $10,000. In this case, you should not trade with more than $1,000, max. In fact, you should not trade with anything more than $750, and use a very tight stop to protect the $750. This means you are leaving a cushion of $9,250 to protect the $750. Go slow building your equity at the beginning and the law of compound interest will accelerate your equity. What I have described above is money management. It is the most important aspect of trading. No money, no trading and no honey.

Lastly, when you lose and you are angry, close all your positions and do something else for about a week or two. Trade again when you've calmed down. Always forget the past and trade in the moment. Once again, trade only high probability trades. When you trade for fun and with fun, you do extremely well. When you are stressed out trading to make money, you will end up losing.

As a final note, discipline yourself, specialize and use an effective money management system to beat the market.

Good luck and trade with at least $25,000 minimum.